Incorporate in Canada?

[econerly]

I'm a dual citizen residing in Canada. I'm currently an employee, but am looking to switch to contractor status with the same company (I have full benefits through my spouse, and the difference in income is substantial). I'm concerned, however, about what US tax implications there might be, and which option is a) the most advantageous economically, and b) which option is the easiest to navigate. Other background: my husband is a sole Canadian Citizen, and his income is higher than mine. We also have a number of rental properties, FWIW.

Options:
1. Incorporate and receive salary as sole employee of corporation
2. Incorporate and pay dividends to myself as sole shareholder
3. Be a sole proprietorship

I've been told that option 2 raises red flags with CRA, as you are taxed less. Is this true?

What IRS forms will need filing as a corporation? What about a sole proprietorship? Which is easier?

[JGCA]

Since you are a USC you will have to report not necessary file a 1120F to the IRS each yr since you own more than 10% of a fareign corp they want reporting on that at the least.

1) If you would incorporate you should pay salary only to reduce the tax in the corp and allow you to take the income personally and pay tax on the personal side so it will be offset with FTC on the US side once you file a 1040 showing the same income in the US.

2) Do not pay dividends since you income will be from the US you will NOT get the small business tax rate of 16% in Ontario but will be taxed at the high rate of 28% and no credit personally on the corp tax paid since its borne by the corp not you personally.

3) Registered company work fime and its a lot cheaper to run and file each year same results as 1) above and easier for a small business scenario.